2017 (2) TMI 34 - HC - Income Tax

High Court: Rule 8D not retroactive, upholds Tribunal's deletion of disallowances

Principal Commissioner of Income Tax -2 Versus Gujarat State Investment Ltd.

The High Court held that Rule 8D of the Income Tax Rules does not apply retrospectively and affirmed the Tribunal's decisions to delete disallowances ... Addition u/s 14A - Applicability of Rule 8D - whether shall be applicable retrospectively or shall be applicable from AY 2008-09? - ITAT delted addition - Held that:- It is not in dispute that now following the decision of the Bombay High Court in the case of Godrej and Boyce Mfg Co. Ltd vs. Deputy CIT reported in (2010 (8) TMI 77 - BOMBAY HIGH COURT ), the Division Bench of this Court in the case of Commissioner of Income Tax vs. Torrent Power Limited (2014 (6) TMI 185 - GUJARAT HIGH COURT ) has held that provision of Rule 8D shall be applicable prospectively and shall not be applicable with respect to earlier assessment years. In view of above concluded question, it cannot be said the learned Tribunal has committed any error. The proposed questions of law are answered against the Revenue and in favour of assessee Issues:1. Applicability of Rule 8D of the Income Tax Rules retrospectively.2. Disallowance under section 14A of the Act.Analysis:Issue 1: Applicability of Rule 8D retrospectivelyThe High Court considered whether Rule 8D of the Income Tax Rules should be applied retrospectively or from Assessment Year (AY) 2008-09. Referring to the decision of the Bombay High Court in the case of Godrej and Boyce Mfg Co. Ltd vs. Deputy CIT, the Court noted that the Division Bench in the case of Commissioner of Income Tax vs. Torrent Power Limited held that Rule 8D applies prospectively and not to earlier assessment years. The Court concluded that the Rule 8D provision is not applicable to prior assessment years. Therefore, the Tribunal's decision was upheld, stating that no error was committed. The proposed questions of law were answered against the Revenue and in favor of the assessee. Consequently, the Court dismissed both appeals.Issue 2: Disallowance under section 14A of the ActThe appeals involved challenges to the disallowance made by the Assessing Officer under section 14A of the Act. The Tribunal had deleted the disallowances, leading to the Revenue's appeals. The proposed questions of law in both cases questioned the Tribunal's decision to delete the disallowances. However, based on the Court's analysis of the applicability of Rule 8D as discussed above, it was determined that the Tribunal's decisions were correct. The Court found no substantial questions of law to arise and hence dismissed both appeals in favor of the assessee.In conclusion, the High Court of Gujarat decided that Rule 8D of the Income Tax Rules does not apply retrospectively, affirming the Tribunal's decisions to delete the disallowances under section 14A of the Act. The Court dismissed both appeals, ruling in favor of the assessee based on the established legal precedents.